Advice

Where is the money - breeding or trading?

By David McLean
March 19 2022 - 2:00am
Where is the money - breeding or trading?

With big money being paid for weaners, I'm hearing talk about people wanting to increase breeder numbers.

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So, where is the money - in breeding or trading/backgrounding? There is no single answer to this, and it is critical to remember that price received is only one driver of profitability. Profit is a function of the price received compared to your cost of production.

I want to discuss this by taking a look into the past. Specifically when certain livestock commodity prices changed significantly. History shows us to not 'chase the high prices'. Why? Price received is dependent on supply and demand. When demand increases above supply - prices rise. When supply increases above demand - prices drop.

There are two key factors to consider - timing and supply/demand.

When many people decide to increase breeder numbers, that increases demand which means the price for females will increase (we've seen this). As a result, the amount invested can be very high.

Depending on what article you buy, it could take a few years before you get any income from this investment. For example, if you bought a weaner heifer this year to breed, depending on whether you mate yearlings or two-year-olds, it will be 2024 or 2025 before you have a weaner. Can you tell what prices will be doing in 2025? I can't!

If enough people have decided to increase breeder numbers, then it is likely that the total supply of weaners could be much higher in two to three years than it is now (seasons permitting). If supply is greater than demand, then prices will come down. The problem with chasing prices is that by the time you have something to sell, the high prices may not still be there for that commodity.

So what works? Whatever you do needs to work for you and your country. The way to maximise profit in your business is to increase productivity at the lowest possible cost. This might be via a combination of breeding and backgrounding. Or by continuing to background/trade and doing it well. Your strategic direction shouldn't change rapidly or regularly. If you are going to make big investments, please do the analysis and assess the risk first.

Meanwhile, enjoy the good prices!

  • David is chief of delivery running Grazing for Profit Schools and advisory work with RCS Australia. www.rcsaustralia.com.au 1800 356 004

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